Tuesday, November 3, 2009

Earlier this week at the Kuwait Financial Forum, H.E. Hamood Bin Sangour Al-Zadjali Executive President of the Oman Central Bank advocated bank mergers as a way of strengthening the GCC financial sector. As a first step, he called for active GCC central bank promotion of domestic bank mergers to be followed by regional cross-border mergers and expansion.

A very worthy goal.

The GCC has too many banks.

As a result, limited financial capital and human talent are dispersed preventing the development of the scale and muscle necessary for local banks to truly compete on the global stage and to fully serve regional markets.

Perhaps, that last comment about limited capital seems strange. After all, the GCC states are major oil exporters. It seems intuitive that their banks would be major players in the world.

Let's drill down into the details to see that this is not the case.

Each year The Banker prepares a list and analysis of the "Top 1,000 World Banks". Note that this is based on financials from the close of the previous financial year: the 2009 list is based on 2008 fiscal year end financials.

The 2009 Top 100 Arab Banks had Tier 1 Capital of US$138 billion, roughly 3.2% of the total Tier 1 Capital for the Top 1,000 banks. The GCC Banks' share was US$110 billion or 2.6% of the Top 1,000.

To put this into an even starker perspective, the Tier 1 Capital of just JPMorgan Chase was $136 billion - roughly equal to all of the Top 100 Arab Banks. The market capitalization of ICBC (PRC) US$248 billion.

Looking at assets, the Top 100 Arab Banks had total assets of US$1.3 trillion and the GCC Banks' share of that amount was just short of US$1 trillion.

By contrast one bank, Wells Fargo (ranked #18 in assets among the Top 1,000) had US$1.3 trillion in assets. Dexia Bank Belgium (#25 in the list) had total assets equivalent to all the GCC banks in the Top 100 Arab Banks.

What's even more striking is the Emirates Bank-NBD (UAE), the largest of the Top 100 Arab Banks, had total assets of US$76.9 billion - roughly 57% of JP Morgan's Tier 1 Capital! When compared to US banks, Emirates Bank-NBD would be slightly larger than Country Wide (the 16th largest US bank) and slightly larger than JP Morgan's Delaware Bank (the issuer of JPMC's credit cards).

National Commercial Bank (Saudi Arabia) had the largest Tier 1 capital among the Top 100 Arab Banks at US$6.68 billion.

For those interested in pursuing this topic further, additional information on The Banker's 2009 List is here and on the Top 100 Arab Banks here. You'll find links to detailed charts on the Top 100 Arab Banks at end of the second link.